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Global Market Report - 26 October

Lewis Jackson  |  26 Oct 2021Text size  Decrease  Increase  |  
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Australia

The ASX is to rise after Wall Street rallied and Tesla rose 13% on inking a deal with Hertz.

The Australian SPI 200 futures contract was up 14 points or 0.18 per cent at 7,438 near 8.00 am AEST on Tuesday, suggesting a positive start to trading.

US stocks rose Monday, with the S&P 500 and Dow Jones Industrial Average closing at record highs.

The S&P 500 ticked up 0.5% as close, and the Dow advanced 0.2%. Both topped records hit last week. The Nasdaq Composite Index added 0.9% as technology stocks gained to start the week.

Tesla shares climbed nearly 13% to an all-time high. The company's market cap ballooned above $1 trillion for the first time. Hertz said it was ordering 100,000 Teslas, so it can include more electric vehicles in its car-rental fleet.

The Australian dollar was buying 74.89 US cents near 8.00am AEST, up from the previous close of 74.68. The WSJ Dollar Index, which measures the US dollar against 16 other currencies, rose to 88.12.

Locally, the S&P/ASX 200 closed 0.3% higher at 7441.0, with gains across almost every sector.

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Commodity stocks led the way as the benchmark built on positive momentum from the Dow Jones Industrial Average's record at the end of last week.

Energy companies provided five of the ASX 200's six best performing components as Oil Search, Santos, Origin, Woodside and Beach put on between 3.5% and 5.1%.

Shares in iron ore and gold miners also rose, although Mineral Resources' 9.0% gain on the restart of its lithium joint venture made it the standout performer.

Industrial and tech stocks slipped, with Afterpay giving up 2.7% amid disquiet over potential regulation of Australia's buy-now-pay-later sector.

As many major economies are facing a growing inflation threat, Australia is expected to remain an outlier. Trimmed mean inflation is expected to print a benign +0.5% on quarter in 3Q and +1.8% on year. The data are due Wednesday. Such a result would be below the RBA's 2%-3% target.

Gold futures rose 0.7% to $US1809.00 an ounce; Brent crude rose 0.4% to $US85.90 a barrel; Iron ore was 0.4% lower at US$119.08.

The yield on the Australian 10-year bond was down at 1.78%; The US 10-year Treasury note fell to 1.63.

Asia

Chinese stocks started the week higher, with energy companies rising amid high energy-commodity prices while consumer-related companies fell. The Shanghai Composite Index rose 0.8%, the Shenzhen Composite Index gained 0.9% and the ChiNext Price Index advanced 1.6%.

Hong Kong's Hang Seng Index closed flat. HSBC Holdings rose 0.4% after disclosing 3Q results and its plans to buy back up to $2 billion in stock. The market is likely to focus on the spate of 3Q earnings due later in the week, KGI Securities said.

Japanese stocks ended lower, dragged by falls in tech and food stocks, as uncertainty continues about the pace of an economic recovery from the Covid-19 pandemic. The Nikkei Stock Average fell 0.7%. Investors are focusing on political developments ahead of Japan's lower-house election on Sunday.

Europe

European stocks were flat on Monday as investors waited on earnings from the major tech giants later this week. The pan-European STOXX 600 index, which tracks the performance of companies across 17 European companies, was up 0.07%.

In London, the FTSE 100 was 0.25% higher.

North America

US stocks rose Monday, with the S&P 500 and Dow Jones Industrial Average closing at record highs.

Stocks flitted between small gains and losses in early trading, but were decisively higher by afternoon. The S&P 500 ticked up 0.5% as of close, and the Dow advanced 0.2%. Both topped records hit last week.

The Nasdaq Composite Index added 0.9% as technology stocks gained to start the week.

Strong earnings from banks, consumer companies and manufacturers have soothed investors' concerns about higher inflation and labor shortages. Now all eyes are set on technology stocks, which have a weighting of nearly 30% in the S&P 500.

Facebook is scheduled to report third-quarter results Monday after markets close. Microsoft, Twitter and Alphabet, Google's parent company, are scheduled for Tuesday. Apple and Amazon.com are expected to report later in the week.

"Without a doubt, tech is the most important sector to the S&P overall," said Eric Mintz, portfolio co-manager at Eagle Asset Management. "I broadly expect earnings from the tech sector to be robust."

Shares of PayPal jumped 2.7% after it said it wasn't pursuing a takeover of Pinterest. Reports last week of a potential deal sent PayPal's shares down. Pinterest shares tumbled 12.7%.

Tesla shares climbed nearly 13% to $1,024.86, closing at an all-time high. The company's market cap ballooned above $1 trillion for the first time. Hertz said it was ordering 100,000 Teslas, so it can include more electric vehicles in its car-rental fleet.

Michael Hewson, chief markets analyst at CMC Markets, said that one notable takeaway from earnings reports so far has been "the ability of companies, for the most part, to pass on increases in prices onto their customers without seeing a drop in sales."

Still, disappointing results last week from social-media company Snap could be a "canary in the coal mine for the rest of the tech sector," Mr. Hewson said. Snap warned that tougher privacy rules from Apple would likely crimp its advertising sales. If other tech giants post dour outlooks, investors "could see the mood sour quite quickly," Mr. Hewson said.

A key question for investors is how global central banks will respond to rising prices. Recent trading in short-dated UK gilts suggests investors think the British government may raise interest rates as soon as November. Investors await comments from the European Central Bank and the Bank of Japan, which both have meetings scheduled this week. The Federal Reserve has signalled a possible rate increase next year, and officials could start scaling back pandemic-era stimulus at the November meeting.

"It's very normal at this stage in the game, when the Fed starts taking away the punch bowl, for dividend growth stocks to outperform," said Sarah Henry, managing director and portfolio manager at Logan Capital Management. "It seems like the complexion of the market has changed and the tone that investors are valuing."

Money managers are also closely watching negotiations among US lawmakers about the fate of President Joe Biden's sweeping social-policy spending package. House Speaker Nancy Pelosi said Sunday that she was optimistic an agreement could be reached this week on the framework for the legislation, and a vote on a separate infrastructure funding bill.

Government spending on that scale "will continue to support growth," said Esty Dwek, chief investment officer at Swiss online bank FlowBank. "The question now is more about taxes and how they will pay for it."

The yield on the benchmark 10-year Treasury note ticked lower to 1.634%, the largest decline in more than a week. Yields move inversely to bond prices.

is a reporter and data journalist with Morningstar. Tweet him @lewjackk or get in touch via email

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